KARACHI: The rupee remained under pressure against the dollar as strong demand from importers pushed the greenback Rs1.35 higher in the interbank market on Thursday.

Currency dealers in the banking market said that the dollar has transitioned from a managed system to a free zone, which may result in further rate increases.

The closing price of the dollar was quoted at Rs285.15, up from Rs283.80 a day earlier.

Since its lowest price of Rs275.45 on July 4, the dollar has appreciated by Rs9.70 against the local currency. The inflows from the International Monetary Fund (IMF) and other sources temporarily stabilised the dollar’s price.

“The pressure is mounting due to free imports, rush for the dollar is high,” said Atif Ahmed, a currency expert and dealer in the banking market.

Rupee dips to 285.15 even as SBP reserves surge by $4.2bn

As a result of the $3 billion Stand-By Arrangement with the IMF, importers were given a free hand which was previously restricted. Simultaneously, the IMF asked Pakistan to refrain from influencing the exchange rate.

Earlier, the State Bank managed the exchange rate to some extent. Some bankers said that with importers now having a free hand, there is a surge in demand for dollars, leading to a high price for greenbacks.

“I believe the rush for imports will be reduced after a month, and the exchange rate is expected to stabilise,” said Zafar Paracha, Secretary General of the Exchange Companies Association of Pakistan.

However, bankers maintained that higher imports require higher foreign exchange reserves, but the inflows are not sufficient to absorb the demand. This shortage of dollars will lead to an appreciation of the dollar against the rupee.

Analysts find it challenging to accept even 2.5 per cent economic growth for the current financial year, FY24. The growth was a mere 0.29pc in FY23, while some economists even argue that FY23 experienced negative growth.

The open market reported dollars trading at Rs293, but Mr Paracha mentioned the closing price of dollars in the open market as Rs289.50. According to an IMF condition, the dollar price difference should be within 1.25pc. However, the grey market dollar price was around Rs305.

SBP reserves swell

Separately, the SBP reported on Thursday that its foreign exchange reserves increased by $4.2bn to reach $8.727bn during the week ended on July 14.

The central bank said it received $2bn from Saudi Arabia, $1bn from the United Arab Emirates and $1.2bn from the IMF.

With current inflows, the country’s total foreign exchange reserves reached $14.065bn. The net holdings of the commercial banks were $5.338bn.

The inflows not only boosted the SBP’s reserves but also helped Pakistan avoid sovereign default risk. The country succeeded in narrowing the current account deficit to $2.5bn in FY23 from over $17bn in FY22.

However, the country had to face a loss of over $8bn due to a significant decline in remittances and exports in the outgoing fiscal year.

Published in Dawn, July 21st, 2023